On Monday, the price center of MEG rose sharply, and electronic trading was closed at the daily limit in the afternoon. Market buying followed up actively, and traders were in a strong mood to cover their short positions. Since last Thursday, MEG has stabilized and rebounded, with an increase of more than 7%. What changes have quietly occurred in the market during the price changes? How strong will the subsequent rebound be? Let’s sort it out from a fundamental perspective.
1. Domestic production load has dropped, and some devices have been converted to production with obvious EO
As of last Friday, the overall operating load of domestic ethylene glycol was 73.28%, down 5.71% from the same period last month; among which the operating load of coal-based ethylene glycol was 62.39%, down 8.55% from the same period last month. The main decline points come from the shutdown of coal chemical industry Puyang and Huaihua chemical plants for maintenance, and the conversion of traditional plants to EO production, which translates into monthly supply of around 30,000-40,000 tons.
Figure 1: EG-EO spread chart
After the holiday, the price trend of EG-EO showed two extremes. The price of ethylene oxide soared, while the price of ethylene glycol quickly dropped from the upper level of 8,000 yuan/ton to around 6,500 yuan/ton. The economic benefit price difference between the two is obvious. Traditional devices The production conversion is obvious, and Chengdu Petroleum still has plans to further convert production in mid-to-late March.
2. The import shrinkage in March and April was realized, and the arrival of ships at the main port decreased significantly
In the first half of the year, foreign MEG maintenance plans were relatively concentrated, the overall output shrank, and some active contracts in the Chinese market were canceled or postponed. In March, the volume of MEG shrank significantly, and Farsa, Shell, Aramco and other cargo sources all had plans to offset the arrival in Hong Kong. Judging from monitoring indicators, arrivals at MEG’s main port shrank significantly in March. The arrival volume at the main port in the first half of the month was only around 150,000 tons, a decrease of 50,000 to 60,000 tons compared with the same period last month. The expected reduction in imports has been gradually realized.
3. Supply and demand were reduced in March and April, and there was still oversupply in the first half of the year
Figure 2: MEG supply and demand pattern
From March to April, due to the reduction in MEG import supply, the supply and demand pattern increased significantly. However, with the resumption of operation of some devices in April and May, the shrinkage of imports is expected to gradually slow down. Coupled with the impact of the Spring Festival holiday in January and February, MEG’s inventory accumulation is obvious. Therefore, in the first half of the year, MEG supply is still abundant.
Amid the subtle changes in the market, whether the rising power of ethylene glycol can continue to push forward, the follow-up of terminals cannot be ignored. Although the efficiency of polyester products has been compressed at present, the overall profit effect is still considerable, and the cash flow of POY and FDY is still 200-300 yuan/ton. Although this is more of a book figure, the actual profit level will shrink due to the impact of high-priced polyester raw materials reserved in the early stage, but at least there is still room for compression. Judging from the polyester product inventory, the current POY inventory is around 18 days, FDY is around 26 days, and DTY is above 30 days. The overall level is higher than the 7-10 days in the same period last year.
Figure 3: Polyester product cash flow
Figure 4: Polyester product inventory
At present, silk prices are still in the downward channel, and terminals’ overall stocking intentions are relatively limited, with more on-demand purchases being the main focus. This has also led to a long period of tepid production and sales of polyester. Looking at the overall industry, the normal digestion and transfer of polyester products still takes time, and the feedback from products to raw materials also takes time. If the polyester terminal follows up passively, the long wait is bound to erode market confidence again, and will also inhibit the overall rebound of MEG, and it will be more about finding direction again in the platform shock.
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